F&O build up suggest buoyancy but FII trade might contradict

ECONOMICTIMES.COM|

Nov 21, 2008, 10.32 AM IST

MUMBAI: Indian equities opened higher Friday after a pullback in Asian counterparts. But the market is likely to remain highly volatile as the sentiment wavers between optimism and pessimism. The Nifty November futures turning into premium from discount on the back of some long build up coupled with bears unwinding option positions points to a sharp recovery on cards. However, foreign players' selling in cash and index futures challenges the optimism.

Nifty November futures settled at a premium of 21 points to the spot against Wednesday's 8 points discount. The contract price slipped 2.03 per cent while added 21.9 lakh shares in open interest. The buy side was heavier than sell, indicating short covering and build up of some long positions in the contract.

Nifty options data suggests that traders expect sharp recovery from the current levels. Profit booking was observed by bears in Nifty puts 2600 and 2500 and they unwound their out-of-the-money written calls while bulls bought calls at strikes 2500 and 2600 and wrote puts at 2500, 2400 and 2300 levels expecting Nifty to take strong support in this zone. The call build up indicates that traders expect Nifty to trade between 2,600 and 2,750 levels.

Foreign players on November 20, net sold Rs 1053 crore in index and stocks futures and Rs 762.94 crore in cash segment. Thursday, continuing the losing streak, Indian markets fell Thursday for the seventh day in a row. However, profit booking by bears at lower levels helped indices to pare some of the early losses. National Stock Exchange's 50-share Nifty closed the day 3.11 per cent lower at 2553.15.

Some technical analysts expect that the markets may not go back to their October lows in near future. Also one can expect bullishness if global markets show some recovery after the untiring slaughtering. However, if global markets persistently trading weak, we will follow the radar and may sink even below the October lows.

"I don't expect much downside for the markets from current levels. We are expecting some technical pull back from current levels though it may not be sharp. However, the rollovers to the December series is considerably lower against last month which indicates players are dubious and cautious on the market movement," said Ankit Sinha, CEO-Spark Advisory.

There has been a rollover of only 47.04 lakh shares, which is substantially lower than a rollover of 1.42 crore shares in the November series by this time last month.

"We have witnessed a total collapse of trust in fundamentals. However, I expect that we are into the last leg of selling and may not drift significantly lower from current levels. But lack of value buyers may delay the recovery process," said Anand Pandya, fund manager at Global One Capital Management.

Total turnover in the F&O market was lower at Rs.37984 crore against Rs.41656 crore on Wednesday. The biggest losers in the F&O segment today were Century Textiles, HDIL, Rolta, KLG Systel, Bombay dyeing and Triveni. The biggest gainers were Everonn, SREI, Balaji Tele, GT Offshore, Shree Cement and Brigade.